MPC member Paul Fisher said no return to economic boom anytime soon

Trend growth should be more like 0.6% a quarter Paul Fisher told Cardiff Breakfast Club

Member of the Bank of England’s Monetary Policy Committee, Paul Fisher, said today there was little chance of a return to boom conditions in the UK economy anytime soon.

Addressing a meeting of Cardiff Breakfast Club, the Bank of England’s executive director for markets said though that he had more of a “glass half full than half empty” view on the outlook for economy, with a “gentle and sustained” recovery over the next three years.

Last year Mr Fisher questioned whether the UK economy had entered into a double-dip recession. Revised figures due soon from the ONS in Newport are expected to confirm that a double-dip didn’t occur.

Mr Fisher, who completed a two-day official visit to South Wales yesterday, told his business audience: “There has recently been a lot of discussions about whether the UK has suffered a double-dip recession. Trend growth should be more like 0.6% a quarter and we have only had five quarters of growth at that rate or higher in the 21 quarters since the start of 2008.

“There has been no such weak period [GDP growth average per quarter since 2009 of 0.3%] in the UK since quarterly GDP data were first published in 1955. Even compared with previous examples of financial crisis – whether at home or abroad – the UK economy has been puzzlingly weak for a long term.”

He offered a number of reasons for muted growth, including households reigning in on spending and people on average saving more than before the financial crisis.

Mr Fisher said that growth had also been subdued by a public sector having to make adjustments to the realities of fiscal deficit.

While stressing he was not making any political point he said: “There was clearly a greater structural deficit in the fiscal position than anyone thought pre-crisis and the Government is trying to reduce public expenditure and raise income to get back onto a sustainable footing.

“I should note that no consolidation at all would have been unsustainable and was never an option. Nevertheless it is like that consolidation has weighed on output over the past three years and is likely to do so.”

Mr Fisher said that businesses were also not investing as much as expected. Although he said there were various reasons, including some companies focusing on addressing long-term pension fund deficits, while for some SMEs growth was being impacted by a failure to get sufficient credit (at least in aggregate.

He added: “In the near term, whatever the source of the change in perceptions of permanent income, it is like that growth will continue to be below the previous trend and until more real adjustments to balance sheets across the economy are made. These include households, the public sector, banks and other businesses.

“In my view we are maybe two-thirds to three-quarters of the way through in each case, varying both across and within sectors.

“There is nothing scientific or ‘official’ in that assessment.”

However, Mr Fisher said it did not require a “100% “position before growth strengths at all.

“We may be beginning to see some signs of a pick up. And I think the prognosis is consist with our Inflation Report central prediction of a gentle, albeit sustained recovery over the next three years, “ said Mr Fisher.

“That is a somewhat sobering, but not calamitous outlook for real growth. Most of the economic problems we face will be eased as growth recovers, but in my view, a return to boom conditions is unlikely in the UK anytime soon.”

Minutes published earlier this from the MPC’s meeting on interest rates for this month, showed that Mr Fisher was one of three members – along with Swansea-born David Miles and Governor Sir Mervyn King – voting in favour of an extension of the gilt purchasing quantitative easing programme by £25bn.

He said: “It may sound preserve , but my concern for much of the past five years has been the risk of eventual deflation – once the temporary effects of the various price level shocks work off, weak demand growth would leave us with a Japanese-style economic malaise which would have been very difficult to escape from.”

“If QE has contributed to inflation still being somewhat over target at around 2.5% now, that seems to me a much better outcome than the alternative of a deeper recession and a greater risk of deflation”.

He also said he was also not convinced about the merit of cutting the base rate from its already record low of 0.5%

Mr Fisher said: “Further cuts in rates may not feed through to higher consumption in the normal way and some of the effects could even be perverse.

“We may well find that getting rates back to normal is part of re-establishing economic activity at potential in due course.”

In a Q&A session he was asked about how to address regional imbalances in the UK economy, particularly between the south-east of England and Wales.

Mr Fisher said imbalances were an issue, but that imbalances on income and house prices also existed between different parts of Wales, while there were also deprived area in the south-east of England.

Cardiff Breakfast Club is sponsored by Lloyds TSB Commercial, Morgan Cole and the Western Mail.

The next meeting of the club, on June 14th, will be addressed by Cardiff council cabinet member Russell Goodway.

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